[106th Congress House Hearings]
[From the U.S. Government Printing Office via GPO Access]
[DOCID: f:67392.wais]
FUTURE OF THE EXPORT ADMINISTRATION ACT
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HEARINGS
BEFORE THE
SUBCOMMITTEE ON
INTERNATIONAL ECONOMIC POLICY AND TRADE
OF THE
COMMITTEE ON
INTERNATIONAL RELATIONS
HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTH CONGRESS
SECOND SESSION
__________
MARCH 22 AND APRIL 4, 2000
__________
Serial No. 106-149
__________
Printed for the use of the Committee on International Relations
Available via the World Wide Web: http://www.house.gov/
international<INF>--</INF>relations
______
U.S. GOVERNMENT PRINTING OFFICE
67-392 WASHINGTON : 2000
COMMITTEE ON INTERNATIONAL RELATIONS
BENJAMIN A. GILMAN, New York, Chairman
WILLIAM F. GOODLING, Pennsylvania SAM GEJDENSON, Connecticut
JAMES A. LEACH, Iowa TOM LANTOS, California
HENRY J. HYDE, Illinois HOWARD L. BERMAN, California
DOUG BEREUTER, Nebraska GARY L. ACKERMAN, New York
CHRISTOPHER H. SMITH, New Jersey ENI F.H. FALEOMAVAEGA, American
DAN BURTON, Indiana Samoa
ELTON GALLEGLY, California MATTHEW G. MARTINEZ, California
ILEANA ROS-LEHTINEN, Florida DONALD M. PAYNE, New Jersey
CASS BALLENGER, North Carolina ROBERT MENENDEZ, New Jersey
DANA ROHRABACHER, California SHERROD BROWN, Ohio
DONALD A. MANZULLO, Illinois CYNTHIA A. McKINNEY, Georgia
EDWARD R. ROYCE, California ALCEE L. HASTINGS, Florida
PETER T. KING, New York PAT DANNER, Missouri
STEVEN J. CHABOT, Ohio EARL F. HILLIARD, Alabama
MARSHALL ``MARK'' SANFORD, South BRAD SHERMAN, California
Carolina ROBERT WEXLER, Florida
MATT SALMON, Arizona STEVEN R. ROTHMAN, New Jersey
AMO HOUGHTON, New York JIM DAVIS, Florida
TOM CAMPBELL, California EARL POMEROY, North Dakota
JOHN M. McHUGH, New York WILLIAM D. DELAHUNT, Massachusetts
KEVIN BRADY, Texas GREGORY W. MEEKS, New York
RICHARD BURR, North Carolina BARBARA LEE, California
PAUL E. GILLMOR, Ohio JOSEPH CROWLEY, New York
GEORGE RADAVANOVICH, Califorina JOSEPH M. HOEFFEL, Pennsylvania
JOHN COOKSEY, Louisiana
THOMAS G. TANCREDO, Colorado
Richard J. Garon, Chief of Staff
Kathleen Bertelsen Moazed, Democratic Chief of Staff
John P. Mackey, Republican Investigative Counsel
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Subcommittee on International Economic Policy and Trade
ILEANA ROS-LEHTINEN, Florida, Chairman
DONALD A. MANZULLO, Illinois ROBERT MENENDEZ, New Jersey
STEVEN J. CHABOT, Ohio PAT DANNER, Missouri
KEVIN BRADY, Texas EARL F. HILLIARD, Alabama
GEORGE RADANOVICH, California BRAD SHERMAN, California
JOHN COOKSEY, Louisiana STEVEN R. ROTHMAN, New Jersey
DOUG BEREUTER, Nebraska WILLIAM D. DELAHUNT, Massachusetts
DANA ROHRABACHER, California JOSEPH CROWLEY, New York
TOM CAMPBELL, California JOSEPH M. HOEFFEL, Pennsylvania
RICHARD BURR, North Carolina
Mauricio Tamargo, Subcommittee Staff Director
Jodi Christiansen, Democratic Professional Staff Member
Yleem Poblete, Professional Staff Member
Victor Maldonado, Staff Associate
C O N T E N T S
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WITNESSES
Page
WEDNESDAY MARCH 22, 2000
Daniel A. Hoydysh, Director, UNISYS.............................. 7
David Rose, Director, Export/Import Administration, Intel........ 10
David McCurdy, President, Electronic Industries Alliance......... 12
John W. Douglass, President, Aerospace Industries Association.... 14
Paul Freedenberg, Director of Government Relations, Association
for Manufacturing Technology................................... 17
TUESDAY, APRIL 4, 2000
Roger Majak, Assistant Secretary for Export Administration,
Department of Commerce......................................... 28
APPENDIX
WEDNESDAY, MARCH 22, 2000
Prepared statements:
Daniel A. Hoydysh................................................ 40
David Rose....................................................... 59
David McCurdy.................................................... 61
John W. Douglass................................................. 74
Paul Freedenberg................................................. 80
TUESDAY, APRIL 4, 2000
Prepared statements:
The Honorable Ileana Ros-Lehtinen, a Representative in Congress
from Florida and Chair, Subcommittee on International Economic
Policy and Trade, Committee on International Relations......... 94
The Honorable Robert Menendez, a Representative in Congress from
New Jersey..................................................... 96
THE FUTURE OF THE EXPORT ADMINISTRATION ACT--PART I
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WEDNESDAY, MARCH 22, 2000
House of Representatives,
Subcommittee on International Economic
Policy and Trade,
Committee on International Relations,
Washington, DC.
The Subcommittee met, pursuant to notice, at 1 p.m., in
room 2200 Rayburn House Office Building, Hon. Ros-Lehtinen,
(Chairman of the Subcommittee) presiding.
Ms. Ros-Lehtinen [presiding]. The Subcommittee will come to
order. Thank you so much for your patience, the panelists, the
Members especially, and the audience. Thank you.
The export of dual use commodities has been and continues
to be a priority. In light of recent technological advancements
and the continuing demand for American merchandise,
apprehensions have intensified about the loss of future markets
for American industries, as well as the potential for U.S.
exports to contribute to the military capabilities of foreign
adversaries. Export controls in the form of the Export
Administration Act have been the pivotal instruments used to
address these dual, yet converging concerns.
The Export Administration Act of 1979 was based upon
legislation devised at the onset of the Cold War for the
purpose of regulating the export of dual use items to provide
safeguards for U.S. national security. Since 1990, when the Act
expired, there have been several attempts to develop
legislation which meets the needs of both a rapidly developing
marketplace, as well as a rapidly changing global security
environment with new and different threats.
These efforts have failed to find consensus in both the
House and Senate. Thus, the Export Administration Act has been
maintained through a series of executive orders issued under
the International Emergency Economic Powers Act. The dilemma we
continue to face is how to restrict the spread of potentially
destructive technologies, how to deter terrorism and other
rogue behavior, while allowing legitimate sales to go forward,
to preserve the ability of U.S. technology exporters to develop
their markets, and to foster U.S. technological leadership.
Critics of the current U.S. export control system say that
the existing policies promote interagency gridlock, causing
conflicts between the various entities responsible for
licensing and enforcement. They argue that the solution to a
more efficient export control mechanism lies in streamlining
the process and consolidating regulatory power.
Recent statements by Bruce Middleton, managing director of
the Australia-based Asia Pacific Aerospace Consultants,
illustrates the challenges facing American industries and the
impending need for reform of the licensing process. He states,
``Frankly, America is no longer seen as a reliable supplier or
partner. American companies can neither guarantee export
permission nor estimate how long getting that permission might
take.''
One alternative which has been proposed is for the
licensing review and approval process to take into account
policy precedent. That is, if licenses for exports of
particular products to specific countries are routinely
approved, then new requests which fall under this precedent
should be expedited for approval.
Industry and scientific experts underscore the need for
better definitions of products and national security risks to
better focus on technologies that should be protected. We
cannot continue to, for example, treat simple metal mounting
brackets for the avionics bays of aircraft equal to
sophisticated satellite technologies.
In the case of computers, we need to move away from an
MTOP-based system to a more responsive approach which reflects
technological realities and provides a more accurate measure
than offered by current performance-based controls. Other areas
which, I'm sure that we will hear today, need to be addressed
are: reductions in the congressional review periods; targeting
post-shipment verification of products and recipient countries
posting the greatest national security threat; and issues such
as the foreign availability and mass market status.
There are some who use the foreign availability argument to
advocate the removal of all export controls for everything and
for all countries. However, we as policymakers must be careful
not to make such broad, far-reaching generalizations, and take
into consideration the type of technology or product to be
exported; how the product will be used; and the nature of the
importing and recipient country.
The recent agreement between the Secretary of Defense Cohen
and his British counterpart hints at the goal of waiving U.S.
export controls over time. What some observers will point to as
perhaps more pertinent to the discussions regarding the Export
Administration process is the underlying distinction made
between friends and foes in the U.S.-U.K. agreement. Perhaps
proposals to give preferential export control treatment to NATO
members and close non-NATO allies such as Australia, New
Zealand, and Japan to expedite the export process is another
option? Perhaps there are better alternatives? But one thing is
certain, we must focus on a balanced approach which targets
those countries, the recipients, the technologies, and the
products which are of concern to our national security, and
define those within the new global environment.
A clear distinction must be made between products and
technologies, taking into account the rapid pace of
technological change. We must differentiate between the
longstanding U.S. allies and pariah states which continue to
support international terrorism; which conduct espionage
activities against us in the United States; which develop
biological weapons or engage in the proliferation of weapons of
mass destruction, among other threatening behaviors. Enemies
should not be rewarded.
Nevertheless, the balance must and can be achieved. As
Senator Michael Enzi, one of the current cosponsors of S. 1712,
has remarked concerning a new export administration system,
``Industry needs reliability and predictability. Industry needs
to be able to make into it into the marketplace at least the
same time that the competitor does.'' However, a new Export
Administration Act must ensure that ``items that can be used
against our country do not fall into the wrong hands.''
That is the task at hand as we look into our distinguished
panelists today for insight and recommendation on how we in
Congress can achieve these goals. We look forward to all of
your testimony today.
I now would like to yield to the Ranking Member of our
Subcommittee, Mr. Robert Menendez of New Jersey.
Mr. Menendez. Thank you, Madam Chairlady. Thank you for
holding the hearing, continuing in our efforts in this regard.
I am very pleased to have the distinguished Ranking Member of
the Full Committee with us today. This is an issue that he has
been pursuing for quite some time as the former chairman of
this Subcommittee, and now as the Ranking Member of the Full
Committee. I am sure we'll hear from him in a few moments.
The Export Administration Act and export control policy are
amongst the areas of greatest importance to this Subcommittee.
The challenge of the EAA is to strike a balance between our
national security interests and our commercial interests. I
believe that goal is achievable, as I have said in the past. We
have a new bill that is out there, Senate bill 1712, for
example. I think it seeks to achieve that precarious balance.
There are some issues I still have with it, but I see it as
making much-needed changes to our antiquated export control
laws, particularly in the area of enhanced penalties for
illicit export sales.
I think the Congress' failure to reauthorize the EAA has
left the Congress without a voice in an area of increasing
importance to our national security and to U.S. industry.
Moreover, I believe it's a breach of our constitutional duties.
The Constitution clearly gives authority to Congress in the
regulation of foreign commerce. By not reauthorizing, we have
ceded this authority to the executive branch.
Now clearly no one would advocate a policy that would
undermine our national security, but often the lines between
security and commerce are not quite clear. Where there is a
discernible national security threat and where the technology
is clear, clearly not available from any other source, the
licensing decision I would submit is simple. However, licensing
is usually significantly more complicated. Licensing decisions
have to consider not only the intended use of the export and
who the end user is, but whether a foreign country is likely to
permit the sale if we do not.
The United States is a leader of the global economy, and
many businesses rely on exports for a large portion of their
business. American businesses in this field are rightly
concerned about losing business to less scrupulous nations or
being seen as unreliable suppliers. Already the American
computer industry has been stymied and sales of basic desktop
computers due to inflexible export controls. If the United
States wants to continue to be the world leader in the field of
technology, our export control system must be able to
differentiate between exports of sophisticated satellite
systems and the export of a desktop computer.
The bill developed by Senators Enzi and Graham go a long
way toward addressing our national security concerns and our
commercial concerns. Creation of a national security control
list developed in conjunction with the Secretary of Defense is
one way of streamlining the licensing process to focus on
exports to countries of concern and exports of items that pose
a national security concern, I think addressing the issues of
mass market items and foreign availability to ensure that items
which are not exclusively available from American companies and
are not controlled by our export system when they are available
elsewhere is of importance.
In a perfect world, the United States would be the sole
manufacturer and supplier of sensitive technologies, and we
could and would control all sales. However, in today's global
economy, if the United States prohibits the sale of a certain
technology, for example, encryption just to use one, Israeli,
Japanese or Chinese firms would most certainly make the sale if
we do not.
Last, the bill proposed makes some important improvements
in the area of penalties and enforcement. By substantially
increasing penalties, we hope to discourage individuals and
companies from making illicit export sales and to severely
punish them if they violate the law.
Let me close by saying we Democrats will be pressing very
hard to have an EAA that meets the balance necessary, but that
preserves the well dominance of the technology field that we
presently enjoy. I don't believe that we should be sacrificing
that to any other country, any other entity, any other part of
the world. We look forward to hearing from all of our panelists
and the industry and making sure that we meet that goal.
Ms. Ros-Lehtinen. Thank you so much, Mr. Menendez.
I now would like to recognize the Ranking Member of the
Full Committee, who joins us today, Mr. Gejdenson of
Connecticut.
Thank you, Sam.
Mr. Gejdenson. Thank you, Madam Chair, Mr. Menendez, Mr.
Delahunt. I will be very brief. But I do think this is an
incredibly important element in our economy and the continued
ability for the United States to stay dominant in many of these
fields.
You know, at times in human development, change came in
millennia, thousands of years between changes in technologies.
Then for many years it took hundreds of years for change. Then
a period where it took decades to change. When my family came
to this country, we bought a dairy farm in 1950 that used
technology that was available in 1850. It was a perfectly good
and working farm.
Today we can't do that. The shelf life of a computer is
often less than the regulatory time it takes to get an upgrade
through Congress of super computers. With a shelf life of less
than 6 months in a process that can take 180 days here, it is
insane what we are doing. In the Senate, they have shelved the
bill. The Senate leadership should be pressed by the industry
and people to move the bill, and let's see where the votes are.
Should that fail, I think that maybe we should do what we
did with encryption, break this down by computers, by
satellites, to try to focus on choke points in technologies in
a series of small bills, but the industry has to do more than
just come and present itself to this panel. It has to do more
than get its industry heads to speak. You need to get a
grassroots operation going so people understand the
consequences back home.
In Members' districts, they ought to be invited to meet
with employees and managers who understand what's happening
here. Frankly, to some degree, there is an age divide here.
Members of Congress who don't have a computer on their desk and
haven't gone through XTs and ATs and 286s and 486s and
pentiums, don't understand what the differences really mean.
Even this Administration, though it's generally been good, has
made some mistakes.
I can remember when we first got here, the Chinese wanted
to import I think 65 switches for their telephone system. The
Administration blocked it. Next thing you know, the Israelis
were selling the Chinese 625s. The Chinese were making their
own 565s. We accomplished absolutely nothing.
We need to make sure there is a concerted effort to get out
of the way because what's going to happen here, and I see a
couple of folks who spend a large part of their career working
on defense issues, is exactly what happened to the machine tool
industry. We told American machine tool manufacturers they
couldn't export overseas because we didn't want the Russians to
get them. By the time the Russians got around to getting a good
machine tool to improve their submarine program, it was a
Toshiba they were looking at, and the American Defense
Department didn't want American machine tools. They too wanted
Japanese machine tools.
If we want to dominate the industry, we have to sell the
old technology so we can move into the new technologies. I
really think that it is an embarrassment, bipartisanly an
embarrassment, that we have not been able to move forward. This
is a rational decision. This isn't like many decisions that
Congress makes, that you know, there are lots of considerations
that are often hard to place into an equation. If you can buy
the parts in Radio Shack in Beijing, it's hard to believe that
the American Government is going to be able to preclude that
product from reaching people that we don't want it to reach, if
it is generally available manufactured. If we don't allow our
satellites to be launched and we don't sell satellites, do you
know what happens? Instead of knowing what's going on, we have
to watch other people selling them. We devastate an industry
that's very effective and profitable in this country. On top of
that, we lose the information we used to have, which is what
capability each of these other countries has.
I think the Chairman and the Ranking Member have really
laid out where we are. They can't do it alone. One of the
reasons I came here today is to ask you all to make a much
greater effort at getting the grassroots out there on what is
the critical technology for the future. America can't compete
at the bottom of the economic ladder. If you need cheap labor,
you can go to China, you can go to India, you can go to lots of
other places.
We succeed at the top end of technology. If you close that
export door, you are going to kill the American economy. Thank
you.
Ms. Ros-Lehtinen. Thank you, Sam.
Mr. Delahunt.
Mr. Delahunt. Being an older Member of Congress, I'll sit
here and listen to the educated body, the panel and my
colleagues.
Ms. Ros-Lehtinen. OK. Take careful notes then.
I would like to take the opportunity to welcome our five
panelists who have taken time out of their schedule to
enlighten us on their views on the Export Administration Act.
Let us begin with Dr. Daniel Hoydysh, the director of Trade
Policy and Government Affairs for UNISYS Corporation, and the
co-chair of the Computer Coalition for Responsible Exports. Mr.
Hoydysh previously worked with the Bureau of Export
Administration where he assisted in the development of export
control policy for computers, as well as he helped guide and
negotiate multilateral export control agreements.
He will be followed by Mr. David Rose, the director of
Export/Import Administration for the Intel Corporation, and
also the past chairperson of the American Electronics
Association, which he is also representing here this afternoon.
In addition to his work for Intel and the AEA, Mr. Rose serves
as the chairperson of the Semi-Conductor Industry Association's
Export Control Committee, and is active in numerous other
industry groups.
We are also fortunate to have with us our dear friend, Mr.
Dave McCurdy, president of the Electronic Industries Alliance
since 1998, and a former colleague of ours in Congress. Many of
us have had the pleasure of working with David, and following
his service to the constituents of Oklahoma's fourth district.
Mr. McCurdy founded his own consulting firm, the McCurdy Group,
and utilizes his expertise on behalf of a variety of businesses
and corporations. We thank you for being with us, Dave. Thank
you.
Sitting next to Mr. McCurdy is Mr. John Douglass, the
president, CEO, and general manager of the Aerospace Industries
Association, AIA. In addition to his many responsibilities with
that organization, he is also retired Air Force Brigadier
General, who has served at the Pentagon as Assistant Secretary
of the Navy for Research, Development, and Acquisition. We
welcome you today.
Rounding out our distinguished panel today is Dr. Paul
Freedenberg, the director of Government Relations for the
Association for Manufacturing Technology. As well as having
served as the first Under Secretary for the Export
Administration at the Department of Commerce, having been
appointed to the post by President Reagan in 1987, Dr.
Freedenberg is a successful published author, and essayist on
the issues of export policy and international banking.
Thank you, all of you, for joining us today. We look
forward to hearing your comments on the issue of the EAA.
We have been joined once again by Mr. Cooksey, who I know
was here previously. There is a markup going on in the Asia and
Pacific Subcommittee, so we'll have Members going back and
forth. Joining us is Mr. Cooksey and Mr. Rohrabacher. I don't
know if you would like to make some opening statements.
Dana.
Mr. Rohrabacher. Let me just say I have been disappointed
in American industry, and I am very anxious to hear today from
American industry. I think the American people have a right to
be disappointed when we realize that the technologies that
could be used to kill Americans have been transferred to
potential enemies of the United States of America. It's a very
serious issue. People try to dismiss the Cox report. I know
people have tried to pooh-pooh it, and forget it, and put it
under the rug, and pretend that it doesn't exist. But it does
exist. In fact, transfer of technologies to potential enemies
is worse than what the Cox report has suggested and documented.
Because we want America to be prosperous, and foreign trade
is an important component of American prosperity. It is a vital
component. We can not cutoff trade. When people express concern
about our national security, people come back as if we are
isolationists and don't want any trade at all or protectionist,
and don't want any trade at all. That is not the case. But
trade in no way excuses an American citizen from being involved
in the transfer of technology that could kill Americans to a
potential enemy of the United States of America. If anybody
needs further clarification, Communist China is a potential
enemy. It is not an enemy at this time. But there is no one
that I know in the foreign policy arena that would rule out
Communist China being an enemy of the United States, unlike we
would rule out Britain or Belgium or Japan or any of these
other democratic powers.
So I am very interested today in hearing this testimony.
Also, I think we need a dialogue at the very highest level with
American businessmen, to let them know that citizenship is
not--just because someone is seeking profit for a company that
has to answer to stockholders, that is no excuse for doing
things that are contrary to what obligations every citizen has,
which is not to do anything to put his country or her country
in jeopardy.
With that, I will work with business in every way I can to
ensure there's a free flow of trade to those countries that do
not pose a threat to the United States of America. But I am
aghast at what American corporations have done in terms of the
transfer of technology and trading with countries that do pose
a threat to our national security. Thank you.
Ms. Ros-Lehtinen. Thank you very much, Mr. Rohrabacher.
Mr. Cooksey.
Mr. Cooksey. Thank you, Madam Chairman. I don't really have
any statement, but you know, I agree with a lot of what my
colleague said. I would encourage each one of you to make a
comment on this as you go through your testimony. It would
probably be easier for you to make a comment than for us to, I
hate to say hammer you with questions or grill you on that, but
maybe you could comment as you go through. It would give us
some idea about your position on that too. Because I too share
Mr. Rohrabacher's concerns on that issue.
Ms. Ros-Lehtinen. Thank you very much.
Mr. Hoydysh, we will be glad to enter your full statements
into the record. Please feel free to summarize your key points.
STATEMENT OF DANIEL A. HOYDYSH, DIRECTOR, UNISYS
Mr. Hoydysh. Thank you, Madam Chair. I guess I could begin
immediately by responding to Congressman Rohrabacher by saying
that the members of the Computer Coalition care very deeply
about national security. We are very much concerned about the
security of this country. After all, we are citizens. We live
here. Our children go to school here. We are dependent on this
country for our very survival. We would never do anything
consciously that would hurt or damage the security of this
country. I just wanted to say that right off the top.
Anything that we are proposing, everything that we are
proposing, we feel is in the best interest of the United
States. We feel that the export control system needs to be
balanced in such a way that we can compete effectively in the
global marketplace while still protecting our national
security. I realize that that's an easy statement to make and
the devil is in the details. I would like to provide you some
information that would help you in your deliberations on where
that line should be drawn.
Let me just emphasize a couple of facts. First, we are No.
1. The U.S. computer industry dominates the global computer
market. There is no question about that. We are the leaders in
market share and technology because we are able to beat our
foreign competitors to the market. Also, a healthy and vibrant
United States IT industry is the principal driver of our
economic and industrial, and ultimately military strength. So
our security, we believe, is very closely tied to a healthy
computer and IT industry.
But to maintain this leadership, we must export. Exports
equal profits. Profits can be put back into R&D. R&D translates
to technological leadership. That simply is an economic
equation for which there is no substitute.
According to a study done by the Gartner Group, which was
commissioned by the Computer Coalition for Responsible Exports,
over 60 percent of the computer market is outside the United
States. In other words, two out of every three computers that
will be sold over the next several years will be sold not in
the United States, but outside the United States. If we want to
stay on top, we must compete in this international marketplace.
The second point that I would like to really emphasize is
foreign competition exists and it is substantial. If I
accomplish nothing else in this testimony, I would like to lay
to rest the myth that there is no foreign competition for two
and four processor commodity computers that we are talking
about when we are talking about the control. Again, the Gartner
study projects that over the next 3 years, 30 percent of these
commodity systems will be sold by foreign manufacturers. That
adds up to over 4.5 million units. We're not talking about
thousands. We're talking about millions of units of two and
four processor commodities.
Another fact, according to an International Data
Corporation study released a few months ago, 4 of the top 10
server vendors, and servers are the kinds of systems that we
are talking about, are foreign. They include large world class
companies like Fujitsu, NEC, Siemens, and Hitachi. So for this
myth to continue, that there is no foreign availability, no
foreign competition for the kind of systems that we are talking
about, it is simply not supported by the facts.
Point three. The U.S. export control system is broken. It
is broken, and it is threatening to undermine the technology
leadership upon which our economic, industrial, and ultimately
military strength depends. Let me give you some examples of why
the system is broken. First, it's not consistent with
technological and competitive reality. The evidence for that is
that it continues to control commodity business systems that
are widely available from U.S. and foreign sources. To
illustrate this point, we are asking for the control of 4
processor business systems, not super computers. This is a
critical point, so let me be very clear about what we are
talking about. I would like to provide you some examples that
were taken from press reports.
Compaq computer company, a U.S. company, one of our
members, recently announced that it will install a super
computer for the French Atomic Energy Commission. The French
will use this supercomputer for simulation programs to ensure
the reliability and safety of the French nuclear stockpile
without new nuclear tests. This Compaq system will use 2,500
alpha processors and will operate roughly at 5 million MTOPs.
That is a supercomputer, not the 2 and 4 processor systems that
we are talking about.
Please note that the French are not ordering over the
Internet a 4 processor Dell, IBM, or UNISYS server for this
work. This is a specially designed, specially made for them
2,500 processors.
Another example. Fujitsu recently announced that it would
provide the world's most powerful supercomputer to the Toyota
Corporation for automobile design purposes. In its maximum
configuration, this system consists of 512 proprietary vector
processors, and can operate again at roughly 5 million MTOPs.
That is a supercomputer.
Point two. Why is the system broken? It's not effective
because it is largely unilateral. U.S. export controls are much
stricter than those of our trading competitors. For example,
the Wassenaar Agreement, which is really the only multilateral
agreement that focuses on computers, as Roger Majak, Assistant
Secretary for Export Administration testified, China is
generally not regarded as a target of the four multilateral
export control regimes, which include the Wassenaar and the
missile technology, etc. Wassenaar in particular does not
consider China a target with respect to dual use technologies.
So in effect, there is no multilateral regime for computers
that targets the countries of concern that are of concern for
the United States. So that U.S. controls, whatever they may be,
end up being largely unilateral.
The system is also counterproductive. It wastes Government
and industry resources, and attempts to control the
uncontrollable. Therefore, efforts to police truly sensitive
items are diluted. In a sense, it undermines national security
by undermining our technological preeminence. According to a
Defense Science Board Task Force report, ``protection of
capabilities in technologies readily available on the world
market is at best unhelpful to the maintenance of military
dominance, and at worst, counter productive, by undermining the
industry upon which U.S. military technological supremacy
depends.''
The net result of the current export control system is
therefore that it creates a competitive advantage for foreign
manufacturers that over time will erode our market dominance
and technological leadership, and ultimately our military
superiority.
That basically is the points that I would like to
emphasize. I would be happy to answer any questions.
[The prepared statement of Mr. Hoydysh appears in the
appendix.]
Ms. Ros-Lehtinen. Thank you so much.
Mr. Rose.
STATEMENT OF DAVID ROSE, DIRECTOR OF EXPORT/IMPORT
ADMINISTRATION, INTEL
Mr. Rose. Yes. Thank you very much for the opportunity to
testify. My testimony this afternoon is going to focus on three
areas. One is the tension between global information technology
trends and export controls, the second is the need for
fundamental reform of the export control system, and the third
is a brief assessment of the Export Administration Act of 1999,
the Senate bill, S. 1712.
Today's information technology industry, and the patterns
and trends associated with it, presents a number of new and
fundamentally distinct challenges to the U.S. export control
system. The overwhelming permeation of commodity computers and
microprocessors, commodity networking equipment, and other
information technology products has basically become interwoven
into what is rapidly becoming a global information
infrastructure. At my company, we tend to think, for example,
about computing rather than computers, or separate products,
because of the infrastructural aspect of computing.
This kind of pervasiveness creates a situation in which
commodity level information technology is largely
uncontrollable. In fact, I believe, and our members believe,
such technology is largely unworthy of control. So we have a
fundamental tension between the pervasiveness of information
technology and the export control system. This has occurred, I
think, for a number of reasons. I'll cite four.
First, global mass production and distribution have
resulted in the wide availability of information technology
products throughout the world. The statistics here tend to be
endless, but an estimated 150 million personal computers and
other commodity computers were shipped worldwide last year.
Global Internet usage has more than doubled in the last 2
years. Even the year 2000 projection for sales of digital wire
phones, many of which will be Internet friendly, is 435 million
units. My company, Intel, sells microprocessors at a rate of
roughly 2 million units a week into a global network of tens of
thousands of dealers and distributors.
Three other important factors that drive the pervasiveness
of information technology include: world standardization of
product design and manufacturing processes; increased access to
computers and other products that are linked to the Internet
and other global networks; and the wide diffusion of foreign
manufacturing capability and resultant foreign availability of
products. It is interesting here that the advanced semi-
conductors can be produced outside the United States without
using a single piece of U.S. production equipment.
In all the decentralization and global nature of
information technology, especially commodity level technology,
stands in stark contrast to the centralized nature of the
export control system. This conflict is readily apparent in the
area of computers, as my colleague has indicated, where MTOPs
export controls continually collide with the pace of commodity
level performance.
Later this year, Intel will introduce its Itanium processor
chip, which I have here, which promises to drive the power of 4
processor commodity computers to about 24,000 MTOPs, well above
today's computer decontrol level of 6,500 MTOPs.
So the overall lack of alignment of export controls with
commodity level technological and commercial realities, we
believe requires fundamental reform of the export control
system.
Now in the area of Export Administration Act renewal, AEA
believes that several principles ought to be considered. One is
a new balance. Export controls should be weighed against
economic and competitive costs that can undermine the very
technological leadership upon which the U.S. military and our
overall security relies. Rather than controlling the
uncontrollable, the overriding national security goal should be
continued and expanded U.S. technological leadership.
The second is flexibility. An export regulatory system must
have a variety of ways to adjust controls, including mechanisms
that account for mass market products and changing product
performance, foreign availability, and foreign capabilities.
Timeliness is another important element. A control regime
needs to operate with the speed of modern information
technology as much as possible. Decision making delays measured
in weeks and months are unacceptable in many respects.
Simplification. Any modern export control system needs to
be clear and understandable. To the extent it's not, it is
going to undercut the effectiveness of an export control
system.
Finally, multilateral controls. Controls ought to be
implemented on a broad multilateral basis in order to be
effective in an era of globalism. Unilateral controls are
simply self-defeating.
Overall, AEA believes that the Senate EAA bill, S. 1712 as
passed by the Senate Banking Committee, generally comports with
these principles. On the upside, the bill contains favorable
mass market foreign availability provisions, though they could
be improved. It contains reasonable provisions for parts and
components and technology transfers to foreign nationals. The
bill would reduce the 180-day congressional waiting period for
computer MTOPs to 60 days, although we believe it should go
down to 30.
On the downside, AEA members feel that penalty provisions
are excessive in some respects. They do not provide for self
disclosure, for example, and for mitigation in the case of
mistakes of fact or other inadvertancies.
In sum, AEA believes that the current bill is a good
starting point for this Subcommittee to begin consideration of
new enabling legislation. Thank you.
[The prepared statement of Mr. Rose appears in the
appendix.]
Ms. Ros-Lehtinen. Thank you so much.
Mr. McCurdy.
STATEMENT OF DAVID MCCURDY, PRESIDENT, ELECTRONIC INDUSTRIES
ALLIANCE
Mr. McCurdy. Thank you, Madam Chair. It's a pleasure to see
the Chair and to the Ranking Chair and the former chairman of
the Committee, Sam Gejdenson, who left earlier.
I represent Electronic Industries Alliance, which is a
partnership of high tech associations and companies committed
to shared information and shared influence. We are proud to
represent the most dynamic and competitive industry in the
world economy today. The companies we represent operate
globally and face intense international competition. The fact
is, the days when U.S. companies dominated the global high
technology industry are over. Similarly, the days when the
domestic U.S. market could sustain the industry are also over.
As you can see on the chart to my right here, our industry
exported $180 billion in goods last year. This is more than
one-third of what our industry produces. The chart also
demonstrates how fast technology is changing and becoming
pervasive throughout the world. This is especially true in the
area of semi-conductor speed, where Moore's Law defines the
rapid pace of change. Quite frankly, there are now seminars on
beyond Moore's law, what comes next in nanotechnology and other
areas.
I thought it was interesting David and I could touch the
Itanium chip. My palm computer is about the same. PDA is about
the same size as this, virtually almost a supercomputer. So it
is incredible the pace of change in the size.
Much of the rhetoric over export controls boils down to
national security versus economics in exports. More than ever
before, protecting U.S. national security depends on a dynamic
and innovative high technology sector. Whether we're talking
about weapon systems, intelligence gathering capabilities, or
command and control networks, our industry is constantly
improving the technologies that keep us a step ahead of our
adversaries.
An effective export control policy would recognize the
reality that our national security is improved by enabling our
high tech industries to thrive. U.S. national security should
be based on maintaining our technological edge through
innovation, not on a doomed effort to hoard as much technology
as possible.
Another key point to keep in mind is that export controls
can severely disrupt the business models which sustain our
competitive advantage. The U.S. technological advantage is
based to a large extent on speed to market, and mass marketing
through electronic commerce and the World Wide Web. But the
administrative costs of trying to determine what products may
go to what end user for what purpose can easily wreak havoc
with these models.
Our industry operates in terms of global R&D collaboration,
web-based instantaneous order processing, and just-in-time
manufacturing. In contrast, our export control system operates
in terms of general prohibitions, 6-month notification periods,
and inter-agency dispute escalation procedures.
The system in place encourages regulatory complexity. It
emphasizes bureaucratic processes and paperwork over
coordinating with our allies to prevent the bad end users from
acquiring truly sensitive technologies. Effective export
control policies should be based on multilateral cooperation
and facilitation of effective corporate compliance. But the
hundreds of pages of regulations we now operate under have the
effect of penalizing those U.S. companies that try to obey the
law.
We appreciate the efforts in Congress to take a fresh look
at this system with an eye toward updating it to reflect the
economic and political realities of the post-Cold War world. As
you know, the Senate Banking Committee unanimously approved the
EAA reauthorization last September. EIA has neither endorsed
nor opposed the substance of the committee-approved bill. I
would like to emphasize that we continue to have serious
reservations with several aspects of the bill as reported.
We are especially concerned by a number of proposals being
advanced by other Senators and by some in the national security
community, aspects of which would be even more restrictive than
we experienced during the height of the Cold War. Nevertheless,
there are some beneficial aspects of the bill. We have been
supportive of the overall effort.
This process has served a valuable educational purpose, I
think, for everyone involved. One provision I would like to
highlight is that when an item achieves mass market status or
becomes readily available from our overseas competitors, that
item will automatically be released from controls. This is a
provision we have continually advocated. For these types of
items, the inevitable bureaucratic tendency is to resist the
removal of controls. But we must accept that when an item
becomes uncontrollable, it is not just pointless, but harmful
to maintain these restrictions.
Clearly, computers and encryption fall under this category,
but many types of telecommunications equipment, components, and
other items do as well. On this point, we would be deeply
skeptical of any so-called carve-out which would perpetuate
controls on items in spite of those items being found to have
mass market or foreign availability status.
Some proposals we have heard would go so far as to prevent
legitimate mass market or foreign availability studies from
even being conducted. It is disturbing that some policymakers
continue to try to control the uncontrollable in this way.
In closing, I call your attention to my written testimony,
which includes our comments on specific provisions of the
Senate bill, as well as the general principles we believe
should be part of any EAA reauthorization. I hope that you find
these comments useful as you continue this effort.
Madam Chair, I was encouraged by your opening comments and
those of the Ranking Member, and believe that there is an
opportunity to bridge this gap.
If I may, Madam Chair, just to quickly respond to the
gentleman from California's earlier question and comment
supported by Mr. Cooksey. As a Commissioner on the Weapons of
Mass Destruction Commission over the past year-and-a-half, as
the former chairman of the Intelligence Committee, as a former
member of the Armed Services Committee, I stand with General
Douglass here and would bow to no one as far as concern about
national security.
There are serious risks. There are serious challenges.
There are rogue states. There are rogue actors. There are
potential enemies. It is important that we have a national
security apparatus that can speak out when there is that danger
and potential transfer of technology that has a material impact
on the potential national security or national defense of this
country. I think we can look at changing this law in a way that
is safe and provides security.
What we really need to be doing is looking at the
organization of the Federal Government as a whole to ensure
that there are clear delineations of the kinds of technology
and look at the end user first, look at those countries that
are the real threats, and target the countries and understand
through our intelligence capability what their real risk is
going to be, and then work back, as opposed to have a blanket
kind of wall that we try to impose around our own country, and
hopelessly try to prevent the export of technology which is
capable of being used in most commercial activities.
So, Madam Chair, again I appreciate the opportunity. I look
forward to working with the Subcommittee, and trust that you
will make some progress this year.
[The prepared statement of Mr. McCurdy appears in the
appendix.]
Ms. Ros-Lehtinen. Thank you so much, Dave. We appreciate
it.
Mr. Douglass.
We have been joined by Mr. Hilliard. Earl, I don't know if
you wanted to make some opening statements before Mr. Douglass
speaks.
Mr. Hilliard. No.
Ms. Ros-Lehtinen. Thank you.
STATEMENT OF JOHN DOUGLASS, PRESIDENT, AEROSPACE INDUSTRIES
ASSOCIATION
Mr. Douglass. Thank you, Madam Chairman. I want to thank
you for holding these important hearings because this is a
subject of enormous importance to the aerospace industry. I am
sorry Mr. Gejdenson left because I wanted to thank him as well
for the role that he has played in the past. He and I worked
together very closely on some of the most sensitive submarine
technology that exists in our country today when I was the
Assistant Secretary of the Navy.
I would like to also thank Senator Enzi and the others in
the Senate, who drafted this bill. My industry thinks they have
made a major step forward. We do have a few concerns with the
bill, which I will touch on in a minute, but we do believe that
this legislation is needed.
In many respects, Senator Rohrabacher, the need for this
bill----
Mr. Rohrabacher. Congressman.
Mr. Douglass. Excuse me. I don't know whether that's a
promotion or a demotion, sir. But the need for this bill speaks
in large degree to your concerns. One can tell from the passion
of your remarks that you feel deeply about this. I can tell you
as a former military officer, general officer, and a former
Assistant Secretary of the Navy, I share your deep concern for
this. It has been my experience that while I have been in the
aerospace industry after leaving the Government, that no one, I
have not run across a single person anywhere that condones
trading outside of our law or in any way even getting close to
the borderlines of that.
Part of the problem, however, is that the processes that we
have today are very confusing. It is possible to get lost in
the maze, if you will. I will speak to that in a minute.
If the Chair would allow me, ma'am, I would like to also
submit to the record--this is a document called ``The Final
Report of the Defense Science Board.''
Ms. Ros-Lehtinen. Without objection.
Mr. Douglass. ``Task Force on Globalization and Security.''
This is a study done by an independent panel over at the
Department of Defense on the subject of this hearing today.
Much of what we in the Aerospace Industries Association are
advocating is contained in report.
Basically you can sum it up and say that the Defense
Department and industry are almost in total agreement on the
need for a proper form of export licensing, but one that is
substantially different than what we have today.
I would like to begin with a few charts and then talk very
briefly about the bill. A lot of the confusion that you hear on
this subject stems from the fact that we have two laws. We have
one, the Arms Export Control Act, to deal with military
products and services, administered by the Department of State.
That is not what we are talking about today. We are talking
about the Export Administration Act, which is meant to cover
dual use products which could be used both as commercial or
military products. It is administered by the Department of
Commerce.
So the very beginning of this discussion takes you to the
righthand side of the chart, and away from most of those
technologies which one would be concerned about in terms of
sharing with a potential enemy of the United States.
Ms. Ros-Lehtinen. And a fine assistant you have there, Mr.
John Barsa.
Mr. Douglass. He is a fine young man.
Ms. Ros-Lehtinen. Formerly of Lincoln Diaz-Balart's office.
So finally he found a credible job.
[Laughter.]
Mr. Douglass. Next, John. This next chart gives you an idea
of where my industry is in terms of dependence on the global
economy. If you were to go back 10 years ago, you would see
that 50 percent of everything manufactured in the aerospace
industry was sold to the Department of Defense. Only about 30
percent of it was exported outside the United States. Today,
that picture is radically different. The Defense Department is
down in the mid-20's in terms of our business base. The global
economy is somewhere between 40 and 50 percent of our business
base. So we are dependent on the global economy. The vast
majority of those products manufactured in the aerospace
industry for export outside the United States are commercial
products like airliners.
Next, please. This is another important chart which speaks
to many of the comments made by my colleagues earlier. That is,
the economic security of the United States as a critical
element to our overall national security. That's our trade
balance in 1997 broken down by our Commerce Department by
sectors. As you can see, the industry with the largest positive
trade balance in the entire American economy, is our industry,
the aerospace industry, that blue line at the top represents
almost $35 billion positive trade balance.
Now look what happened in 1 year, from 1997 to 1998. Most
of the blue on the chart went away, and all of the other
sectors except for the aerospace sector, which grew to almost
$45 billion positive trade balance. The reds, as you can see,
grew substantially.
I would also submit for the record, ma'am, if I might, an
article today in the Washington Post in the business section
where the headline says, ``U.S. trade deficit rises to a record
$28 billion.'' What this newspaper article is saying is that
the situation in 1999 and 2000 continues to worsen. I can also
add for the Committee that for my industry, we have seen a
reduction of our ability to produce a surplus for the American
economy. We are looking at our sales for 1999 in close scrutiny
now. Sales are probably going to be somewhere between 8 and 10
percent lower than they were in 1998, meaning that our
contribution to the American economy and all that comes from
that large, almost $45 billion surplus, is being reduced. One
of the reasons why it's being reduced is the increasing
confusion in industry over the export licensing laws of our
country.
Now to speak very quickly to S. 1712, I share the general
concerns that my colleagues have and the general support that
they have expressed for S. 1712. We need a new law. I thought
it had been elapsed for over 5 years. You mention in your
opening testimony, ma'am, that it's been 12 years. I didn't
know it had been that long, but clearly, the lack of a legal
framework for these dual use items is causing a lot of
problems.
There are some things about it that I'll comment on.
Section 204 assures that there won't be controls on any items
based on small amounts of controlled American content. That is
a very positive step forward. Section 211 assures that there
will be no controls where items are available on the open
market. These mass market provisions are enormously important.
My colleagues have spoken to those. I won't say any more except
that they should be proactive. We ought to be able to figure
this out before we begin to move toward controls, and indeed we
can. We know what's out there on the global economy.
Section 301, the contract sanctity section, is very
important. Section 304, the Presidential report to Congress
prior to the imposition of controls is important, especially
those portions of the Presidential report that deal with the
economic impact.
Congressman Rohrabacher has been working with the aerospace
industry in dealing with satellite licensing because it is
something he is very concerned about. I think it's fair to say
that when the law was passed moving satellites from Commerce
back under State Department control, people didn't really fully
understand what the economic impact would be. I am here to tell
you that since that happened, our sales have declined by over
40 percent. Hundreds of millions of dollars of high tech sales
and jobs have gone from this industry. These are not weapons.
These are commercial communication satellites, the kind of
satellites that most people credit with spreading news around
the world that did such wonderful things as caused the whole
Soviet empire to collapse.
Section 307 is an important----
Ms. Ros-Lehtinen. If you could wrap up your statement, Mr.
Douglass.
Mr. Douglass. Yes, ma'am. I will wrap it up very quickly.
That is a sunsetting clause. Title 4 contains some humanitarian
exemptions. We think there should be an exemption in there for
safety of flight for commercial airliners. Title 5 is in
procedures. That's a good section. We like its deadlines.
Finally, in title 6, there is a little section in there on
enforcement which needs to be strengthened. It has to do with
people being able to report violations, and then getting a
reward. We think it's important for it to be clear in that
section that people can't just stand by and let a violation
occur, and then reap a reward. If they know a violation is
going to occur, they need to come forward before it occurs so
that steps can be taken to stop the export.
So those are the detailed comments. Thank you very much,
ma'am.
[The prepared statement of Mr. Douglass appears in the
appendix.]
Ms. Ros-Lehtinen. Thank you, Mr. Douglass.
Dr. Freedenberg.
STATEMENT OF PAUL FREEDENBERG, DIRECTOR OF GOVERNMENT
RELATIONS, ASSOCIATION FOR MANUFACTURING TECHNOLOGY
Mr. Freedenberg. Thank you, Madam Chair. I can clear up the
difference between the 12 years and the 5-years. The 12 years
is the time since we passed an Export Administration Act. The
last one was Omnibus Trade Act of 1988. I testified before this
Subcommittee on that subject on behalf of the Reagan
Administration. So I am familiar with it. Five years, and
actually now going on 6, is the time since we have had an
Export Administration Act in force. There was some extension.
Since then, we have been operating on the 6-month-at-a-time
International Emergency Economic Powers Act, essentially by
Presidential fiat, which I believe having also been involved in
the legislation dealing with that, was not the intention of the
International Economic Powers Act. It was supposed to put a
restraint on the President's use of that rather than give him
carte blanche to extend laws through the use of it.
Today I will be talking on behalf of AMT, the Association
for Manufacturing Technology, where I am the director of
Government Relations. AMT represents 370 member companies, with
sales ranging from $10 million to more than $1 billion. We make
machine tools, manufacturing software, and measurement devices.
Our industry sales are nearly $7 billion, and exports account
for more than a third of those sales.
I will also talk about the Graham and Enzi EAA, S. 1712,
but I would like to put it in context before I discuss it.
There is a myth that's grown up in the popular media that U.S.
export control policy toward China is lax. The facts,
particularly with regard to machine tools indicate quite the
opposite. The assertion that our China export control policy is
lax couldn't be further from the truth. The U.S. Government has
consistently been the most rigorous with regard to reviewing
license applications for exports to China. Other countries
within the Wassenaar arrangement simply do not share our
assessment of the risk factors involved in technology transfer
to China, and have generally maintained a far less stringent
licensing policy. Indeed, one could say without equivocation
that our European allies maintain what could only be described
as a favorable export licensing policy toward China.
I point out in my testimony that the time it takes the
process to license is only part of the problem. Official
statistics show that the U.S. Government is far more likely to
disapprove machine tool licenses for China than any of our
European competitors. While a mere handful of U.S. machine tool
licenses have been approved for China over the past 5 years,
actually it's about 25 licenses or 5 a year. Our European
allies have shipped huge volumes, hundreds more than that to
China, to Chinese end users.
The U.S. Government has rigorously enforced the limits on
machine tools. This has significantly disadvantaged U.S.
machine tool builders in the global marketplace. The most
rigorously controlled machine tools are those that possess five
axis. A recent survey by AMT has indicated there are 718 models
of five axis machine tools manufactured around the world, with
584 manufactured outside the United States in places like Japan
and Germany. In fact, there are even six models manufactured in
China. This is the most tightly controlled product to China.
Now the fact that these machine tools are denied is quite
frustrating for the U.S. machine tool builders and their
workers because many of the commercial aircraft factories in
China contain joint ventures and co-production arrangements
with U.S. airframe and aircraft engine companies. In other
words, despite the fact that these Chinese factories are
supervised, are monitored by American executives, U.S.
Government export control policy creates a situation in which
machine tools in those factories are almost certain to be
supplied by European machine tool builders. I would ask how
that assures or enhances our national security?
I argue in my testimony that the statistics show that
European license applications are likely to be approved in a
matter of days or weeks by our European allies, while U.S.
applications languish for months or even longer. Many companies
have told me they forego business in China rather than go
through this process because it's so uncertain and so unlikely
that they are going to get approval.
The Chinese have learned that. They have been telling U.S.
companies not to even come to bid on projects. In fact, they
have now put a monetary penalty for failure to obtain a
license. This is a further deterrent to doing business in
China.
A recent example will illustrate many of the problems
inherent in attempts by U.S. companies to obtain export
licenses for machine tool sales to China. Three months ago, an
AMT member asked for my assistance in obtaining final approval
for an export license that had already been pending for many
months. The Chinese who were making purchases for an aircraft
engine plant informed the AMT member company that they were at
the end of their patience in waiting for U.S. export license
approval. This particular company had been delaying the Chinese
buyers repeatedly, while it tried to obtain individual
validated license for two 5-axis machine tools.
After waiting many months, the Chinese canceled one of the
two orders, but gave the company one last chance to obtain an
export license from U.S. authorities for the remaining machine.
The owners believed that there would be followup orders for as
many as a dozen additional machines that they could prove they
could obtain a license for this one. The U.S. Government was
aware that a Swiss company had offered to fill the order for
these machine tools, and in contrast to the American company,
the Swiss made it clear to the Chinese that there would be no
security conditions or compulsory visitations by the Swiss
company if they were given the business by the Chinese.
In order to create an incentive to approve the license, the
AMT member company offered to provide special software that
would limit the use of the machines and to only a small group
of activities approved by the U.S. Government, and to provide
for regular visitations to ensure that the machine tool could
only be used for the jobs described in the license. While all
this was being negotiated, the State Department refused to
demarche the Swiss government to warn them of the U.S.
Government's concerns with the sales of the machine tool to the
Chinese plant. Negotiations between the AMT member and the
Defense Department dragged on for another 2\1/2\ months, with
none of the AMT members' security or post-shipment visitation
proposals deemed adequate by DOD.
Finally, just as this license that had then been pending
for 6 months was about to be escalated to the Cabinet level for
resolution, the Chinese buyer informed the AMT member company
that they lost patience with the U.S. licensing process and
canceled the order. As it turned out, the Chinese plant manager
decided instead to go with either the Swiss or the French
machine tool alternatives, neither of which had required any
post-shipment conditions, and both of which had already
obtained licenses from their governments earlier.
Reportedly, when informed of the Chinese cancellation and
the need to return the license without action, the comment from
the Defense representative to the interagency review panel,
known as the operating committee, was that he was happy that
because DOD had achieved its objective since no U.S. machine
tool would be going to the Chinese factory.
Of course the U.S. machine tool that would have gone to
that factory would have been under strict conditions, with
numerous followup visits to ensure that it was being used for
the purposes stated in the license. While there would be no
guarantee that Western authorities would be able to check on
the projects which the Swiss or the French machine tools would
be used. Nonetheless, DOD was apparently happy because it had
accomplished the objective of blocked the U.S. sale. I presume
the State Department was happy as well, because it didn't have
to offend any of our friends or allies by taking a strong
position or asking uncomfortable questions of them.
The only ones who are unhappy are the owners of the U.S.-
based machine tool company, who may very well move the
production off-shore to avoid a repeat of this ridiculous
process. Also, of course the employees who may lose their jobs
are not happy either.
I would ask the Subcommittee to consider what this case
illustrates about the national security benefits of our current
export control policy other than the fact that such a policy is
likely to maintain machine tool employment in Switzerland and
France. It certainly did not have any appreciable effect on the
Chinese ability to obtain machine tools for whatever aerospace
projects they deemed appropriate.
I just gave that as a context. I would like to comment
briefly on the Senate bill, S. 1712. The one thing that I think
is most beneficial in that, and it's related to the issue I
just talked about, is that it defines foreign availability as
possible to be proven--the foreign availability can come from
within the multilateral organization, not just outside it.
Currently, you can't prove foreign availability under the law
unless you prove that it comes from outside, in this case
Wassenaar.
Ms. Ros-Lehtinen. If you could quickly wrap up, Mr.
Freedenberg, because we are going to have a series of votes.
Mr. Freedenberg. That's one proposal. The other major thing
that it has that would be beneficial--it does not have it in
there yet, is that we need to create a mandate to go back to
Wassenaar and negotiate a no undercut rule, so that something
on the order of what I was talking about couldn't occur. That
is, the United States turned down a license. The allies could
not approve the license. That was the case in the past. It is
the case in other regimes. We need to have a similar provision
in our current multilateral organization. I'll leave it at
that.
[The prepared statement of Dr. Freedenberg appears in the
appendix.]
Ms. Ros-Lehtinen. Thank you so much.
Do you believe, and I'll ask it for anyone who would like
to answer, that legislation addressing penalties alone or only
shortening the congressional review period would be sufficient,
and realistically speaking, would these offer significant
benefits to the industries that you represent? Also, why is it
important for the penalties to be imposed per transaction
rather than per shipment? If you could be very brief.
Yes, Mr. Hoydysh.
Mr. Hoydysh. Madam Chair, certainly on behalf of the
computer industry we would strongly favor reducing the time
period from 180 to 30 days. We think the 180-day period is
without precedent. It only affects the computer industry. It's
not consistent with any other waiting periods imposed by
Congress. It creates, it makes the system unable to respond to
rapidly advancing technologies. So we would certainly favor a
bill, even if it was just for a 30-day period alone.
Ms. Ros-Lehtinen. Anyone else? Dr. Freedenberg.
Mr. Freedenberg. I could refer to the penalties. Currently
you have the penalties are 10,000 and 50,000, but they can be
parsed. I was enforcing the system, so I can tell you those
penalties can go up to $250,000 or $500,000. So it isn't as if
companies have great incentive to break the law. It is still
fairly substantial fines. But the more significant penalty
which is in the current law already is that you lose your
export privileges. That, since every company has to export, it
basically shuts them down. It is an extremely strong deterrent.
So I think in itself, although it sounds very good to have
a million dollar penalty, and in some cases it may be
justified, that in itself is not such a major accomplishment.
We already do have a fairly strong deterrent within the current
law.
Ms. Ros-Lehtinen. Thank you.
Dave, for the last comment?
Mr. McCurdy. Madam Chair, we are not opposed to increasing
penalties for these violations, but unless the regulations are
made simpler or easier to comply with, then companies may face
some overwhelming liabilities for I think non-intentional
violations.
We also urge that companies be fined per transaction as
opposed to shipment.
Ms. Ros-Lehtinen. Mr. Menendez? Hold on.
Mr. Douglass. I just wanted to add that we also have not
taken a position on the penalty provisions, but we would
strongly support the reduction in the review time. I mean the
issue in many, many cases is we can't bid on things because it
takes so long to get a license that we can't answer the bid
time.
Ms. Ros-Lehtinen. Thank you.
Mr. Menendez?
Mr. Menendez. Thank you, Madam Chairlady. I want to thank
all the panelists.
Mr. Douglass, let me ask you. You said the 40 percent sales
drop in satellite sales. Did other countries fill the void in
that regard?
Mr. Douglass. Oh absolutely. Yes, sir.
Mr. Menendez. Were their satellites of equal?
Mr. Douglass. Yes, sir.
Mr. Menendez. Abilities--was our technology superior?
Mr. Douglass. Mr. Menendez, there is a lot of confusion
about what kind of satellites we're talking about here. Most of
the time when the public hears this, they think we're talking
about spy satellites or something like that. That is not at all
what we're talking about. We are talking about state-of-the-art
communication satellites. They are the kind of satellites that
in a strange way really help democracy spread around the world.
I have had many of my Russian generals that I had to negotiate
with when I was a NATO general tell me the reason why the whole
Soviet Union collapse was because people in Eastern Europe
could watch Western TV, could see what was available.
So when countries around the world want to buy an American
satellite so they can broadcast TV to their people or do e-mail
and things of that nature, and American companies can't compete
on it because it takes too long to get a license or there's
some other----
Mr. Menendez. So the satellites that they purchased from a
foreign country gave them the same capacity that they would
have had, had they purchased ours?
Mr. Douglass. Absolutely. Even if they then were used in a
military sense, if they were our satellites, we could shut them
off, but if they are somebody else's satellites, we can't. So
we doubly lose on this.
Mr. Menendez. If the United States, and this goes to any of
the panelists who want to talk about it, if the United States'
goods are controlled unilaterally to any country, and other
countries sell that same capacity of the item, whether it be a
computer, whether it be a satellite, whether it be any of these
other equipment that the United States leads on, how do we
promote our security, our non-proliferation goals in that
regard? Is there something we're missing?
Mr. Douglass. That's a good question. You want to take a
crack at it?
Mr. McCurdy. Yes. Mr. Menendez, it is clear that most
unilateral sanctions have been highly ineffective. If you are
not getting the cooperation on a multilateral basis, it just
flat doesn't work. The only victim in this case or the only one
that is injured or harmed is often the United States.
So it's not popular to say, and I know the politics of the
Congress and in the country, but it's clear that unilateral
sanctions is for the most part, not the answer.
Mr. Douglass. The most important thing, Mr. Menendez, to
remember about this debate that we're talking about is there is
a lot of confusion between the supremacy of American military
technology and the supremacy of American dual use technology.
Generally speaking, America's dual use technology is not
particularly superior to what you can find in the rest of the
world, even though our military products may be.
When I was living in Europe, they had a form of the
Internet over there a long time before we did, had e-commerce
and all kinds of things a long time before we did. So we tend
to be somewhat of an ethnocentric society that believes
everything is invented here, and it's not, especially in the
commercial environment.
Mr. Hoydysh. Mr. Menendez, could I respond to the non-
proliferation question? Just to put this into context, if we
look at the whole universe of technology that's available, the
chart that was up here before shows you there's a whole chunk
that is military. That subject, the munitions list, it's a very
tight regime. That is not under discussion.
If you are talking about missile technology, there is a
missile technology control regime, which is adhered to by 17 or
20 countries which is relatively effective. It does not control
computers, but it controls everything that everyone deemed is
important for missiles.
There is a regime that controls things for nuclear, the
Nuclear Suppliers Group. That is a multilateral, fairly
effective regime. And there is a regime that controls things
for chemical weapons and biological weapons called the
Australia Group. Again, a relatively effective group.
So what really is left when you are talking about dual use
equipment is the stuff that is like computers and machine
tools. That is a relatively narrow slice of industrial
equipment over which there is relatively little control,
because these are the kinds of things that are absolutely
essential if any developing country wants to go into the 21st
century. So it makes it very difficult to deny the entry level
items, especially in the computer area, when they are available
all over. They are cheap, they are transportable, and you can
buy them or make them yourself without too much effort.
Mr. Freedenberg. If I could say one other thing. The way
you could work on that would be, what I try to say at the end
of my testimony, if you could get the allies to do--we can't
have a veto over what they export any more. That's gone. That
was COCOM. But you could have a no undercut rule, where if you
turn down a license, you get the pledge of the others that they
will turn down that license as well. Not that you stop their
licenses, but that if you already had--say a particular end
user is bad, they pledge to at least give you a hearing and in
general to turn down that license without at the very least,
talk with you about it.
Mr. Menendez. With deference to my colleagues.
Ms. Ros-Lehtinen. Thank you, Mr. Menendez. Yes, I'm sorry,
because of the time.
Mr. Rohrabacher.
Mr. Rohrabacher. OK. Mr. McCurdy, thank you very much for
your comments, your opening statement. I think that your idea
or concept of let's try to find out what countries that we're
talking about that are potentially adversarial or potential
enemies, and let's work back from there, I think that is
exactly correct. I appreciate you going out of the way to make
comments based on my rather I say loud opening statement.
Mr. McCurdy. Aim to please, Mr. Rohrabacher.
Mr. Rohrabacher. Let me say this. First of all, Mr.
Douglass, last week a Chinese launched a satellite. It was
widely reported that that satellite would have a multiplier
effect on the military capabilities of the Communist Chinese
because it would permit command and control coordination that
they never had in the past.
Do you believe that there was any American technology in
that satellite, or that the rocket that lifted it into orbit
had American technology in it?
Mr. Douglass. Mr. Rohrabacher, I wish I could give you a
more definitive answer because I'm not aware of the precise
launch that you are talking about. But it is entirely possible
that the satellite and the missile had some derivative American
technology. Everyone knows that we lead the field here, and
once proof of concept is demonstrated by a country, it is much
easier for others to follow along.
Mr. Rohrabacher. I've only got a couple minutes, but let me
point out yes, it is possible. Not only is it possible, it is
probable that the Chinese rocket that lifted that up was
perfected by American technology, American aerospace engineers
that were over there with either Hughes or Loral, and that the
satellite that went up had not only spinoff or not only things
that they copied, but actually components that were sold to
them by our corporations.
If America--just note why this is important, and you
expressed this in your opening statement. Again, I appreciate
you again giving me the courtesy of commenting on what I had to
say. American lives are going to be lost if we get into some
sort of a conflict with China because technology has been
transferred to that country. I disagree totally with our final
witness. I'm sorry. You can't compare somebody who has no
controls whatsoever and then say well, ours can't be considered
lax because we are comparing it to people in Europe who have no
controls whatsoever on what goes over to Communist China. That
does not make logical sense. It doesn't make sense for our
country's national security.
This is a very important issue. I agree we have got to take
it seriously in a way so we can control the technology flow to
potential enemies, like China, without hindering. What's
happened is we have hindered our ability to do business with
countries that pose no threat, that are democratic nations. I
am very happy to have worked with all of you to achieve that
end.
I'm sorry. We have got to go.
Mr. Douglass. Mr. Rohrabacher, if I could make one comment
though that strikes to the heart of what we have said here
today. I don't think there is any technology in the satellite
or the booster that they could not have gotten from another
source.
I would also add, sir, that it's a two-way street. I was
recently----
Ms. Ros-Lehtinen. Thank you, Mr. Douglass. Thank you so
much. We apologize. We have 1 minute left to go vote on the
floor. The Subcommittee is adjourned. Thank you so much for
your excellent testimony.
[Whereupon, at 2:29 p.m., the Subcommittee was adjourned.]
FUTURE OF THE EXPORT ADMINISTRATION ACT--PART 2
----------
TUESDAY, APRIL 4, 2000
House of Representatives,
Subcommittee on International Economic
Policy and Trade,
Committee on International Relations,
Washington, DC.
The Subcommittee met, pursuant to notice, at 3 p.m., in
room 2128 Rayburn House Office Building, Hon. Ileana Ros-
Lehtinen (Chairman of the Subcommittee) presiding.
Mrs. Ros-Lehtinen [presiding]. The Subcommittee will come
to order.
American industry continues to create and realize an
astonishing array of new and improved technologies. With these
wonderful improvements come both opportunities as well as
responsibilities, given that these advancements may pose new
and yet unknown threats to U.S. national security.
In an effort to address the needs of American companies and
to capitalize on the advantages that new technologies offer,
this Subcommittee has been holding a series of hearings to
discuss ways in which a new Export Administration Act may best
manage export controls.
Based on the Cold War need to restrict access to sensitive
technologies and the ability to control its proliferation due
to U.S. predominance, the original Export Administration Act
was drafted. That legislation lapsed in 1990, leaving the U.S.
to operate export control regulations through a series of
executive orders issued under the International Emergency
Economic Powers Act. This was never intended to replace an EAA.
However attempts to reauthorize the bill have not been able to
achieve the necessary consensus for passage.
The advent of the 21st century underscores the inadequacy
of an export control system devised for a rigidly structured
bipolar world prefacing the onset of the technological
revolution. The world of the 21st century is one marked by a
borderless, fast-paced marketplace which requires a system to
avoid the pitfalls of gridlock and regulatory bureaucracy.
By the same token, however, some experts contend that the
new millennium is a much more dangerous world, devoid of
clearly defined security parameters and riddled with new
weapons, methods, and rogue states.
Some suggest that these competing needs can be reconciled
and that the answer to effective regulation lies in
concentrating regulatory authority in fewer agencies. Other
approaches include giving preferential export control treatment
to NATO members and such non-NATO allies as Australia, New
Zealand, and Japan.
Some see unilateral export controls as self-injurious and
instead would look to multilateral agreements as the only
effective tools for nonproliferation. Still others refer to
their criteria, which takes into account mass-market and
foreign availability, as well as risk factors, end-use,
diversion, and recipient countries.
We must avoid vast generalizations in formulating a new
approach and refrain from removing restrictions and licensing
requirements on controls or controls which threaten and seek to
undermine our U.S. national security.
There are differences of opinions on the specifics of the
approach to be undertaken, however, all agree on the urgent
need to develop a judicious, explicit, and understandable
policy which will govern the licensing, oversight, and review
of dual-use technologies to be exported to foreign markets.
We look forward to the testimony from our witnesses in
this, which is the second in a series of hearings on this
issue.
Before we proceed to other opening statements and our
witness presentation, I'd like to advise our Subcommittee
Members about a markup that our Subcommittee will hold this
Thursday, April 6, at 2 p.m. on H.R. 3680, the Dreier bill,
which seeks to shorten the congressional review period to 30
days from the export of supercomputers. Some of us are already
cosponsors of this measure, but we need the attendance of our
Subcommittee Members for this very important markup and a
markup notice will go out later today.
It is my pleasure to recognize for his opening statements
the Ranking Member of our Subcommittee, Mr. Robert Menendez of
New Jersey.
[The prepared statement of Representative Ros-Lehtinen
appears in the appendix.]
Mr. Menendez. Thank you, Madam Chairlady. I want to thank
you for hosting a second EAA hearing. The future of our export
control laws is an important commercial and national security
issue and I believe we need to hear from the broad range of
public and private sector entities that are impacted by the
EAA.
For that reason, I am sorry that this Subcommittee's work
has been stymied by our inability to hear from witnesses from
the Department of Defense and from the sponsors of the Senate's
EAA bill. I know that the Chairlady has been working with the
Full Committee to bring these witnesses before the Subcommittee
and I appreciate your efforts to address this issue. But I'm
disappointed that we, the subcommittee of jurisdiction, have
been censured by the Full Committee.
As I said at our previous hearing, the challenge of the EAA
is to strike a balance between our national security interests
and commercial interests. I do believe that this precarious
balance is achievable, not to mention necessary.
For far too long, we have been operating under a system
developed for the Cold War era. Today's technology era demands
a system that is responsive to change, that acknowledges
America's world leadership in the technology industry, and that
recognizes the importance of exports to the American economy.
Senate Bill 1712 is a step toward achieving that balance.
The bills developed by Senators Graham and Enzi begins to
address our national security concerns and our commercial
concerns. It creates a national security control list developed
in conjunction with the Secretary of Defense that will
streamline the licensing process to focus on exports to
countries of concern and on exports of items that pose a
national security concern.
The bill also addresses the issue of mass market items and
foreign availability to ensure that items which are not
exclusively available from American companies are not
controlled by our export control system when they are available
elsewhere. In today's global economy, if the United States
prohibits the sale of a certain encryption technology, for
example, an Israeli, Japanese, or Chinese firm will most
certainly make the sale if we do not.
Last, the bill makes important improvements in the area of
penalties and enforcement. The United States is a member of the
global economy. It's its leader. Many business rely on exports
for a large portion of their businesses.
At our last hearing, we heard from a representative from
the Aerospace Industries Association who noted the shift in the
make up of their sales. In 1989, 58 percent of the aerospace
company sales were to the Department of Defense and the U.S.
Government. Only 32 percent of their sales were exports. A
decade later in 1999, 42 percent of the aerospace company sales
were exports and only 35 percent were to the Department of
Defense or the U.S. Government.
American businesses are rightly concerned about losing
business to less scrupulous nations or being seen as an
unreliable supplier. Already the American computer industry has
been stymied in sales of basic desktop computers due to
inflexible export controls. If the United States wants to
continue to be a world leader in the field of technology, our
export control system must be able to differentiate between
exports of sophisticated satellite systems and the export of a
desktop computer.
The reauthorization of the EAA is a serious matter that
demands our attention. American industry deserves laws that are
responsive to today's global economy, not laws that were
created over two decades ago to respond to Cold War era
threats. I, along with many of my Democratic colleagues, will
be pressing for such a reauthorization and I look forward to
working with the Chairlady on this challenge to renewing
Congress' voice on this important topic. I believe we've lost
some of our jurisdiction over the issue by not speaking to it.
We look forward to the Secretary's testimony.
Thank you, Madam.
[The prepared statement of Representative Menendez appears
in the appendix.]
Mrs. Ros-Lehtinen. Thank you so much, Mr. Menendez. Our
ever-faithful Member of our Subcommittee, Mr. Sherman.
Mr. Sherman. Thank you, Madam Chairwoman. I think it is
important that we reauthorize. It is a small affront to our
constitutional system that for so many years this important
area of Federal responsibility is handled by executive fiat
instead of pursuant to legislation. This is an important issue.
Everyone in the country knows that we need to balance our
economic with our security interests and they expect Congress
to draft laws that will do that, not simply punt due to
concerns about which committee or whatever other concerns have
stymied the reauthorization of this Act.
I do think that it is often said that technology is,
``available elsewhere,'' we do need and have often worked with
our allies around the world so that we work together to make
sure that rogue states and dangerous states do not get a dual-
use technology and that it should not be a circumstance where
in Britain or France, an exporter is saying, well, we'd better
sell because the Americans will sell and vice versa. All of
those concerned with world security should work together. That
will not, of course, always happen.
The great enemy in this area is delay, because where
Americans exports are stopped for good security reasons, that's
the price we pay for working for national security. But where
there are just interminable delays, not only are we depriving
ourselves of jobs, but we are also building high technology
industries in countries that have less reluctance to export. So
it is imperative, from a national security perspective and an
economic perspective, that nothing gets done quicker in the
Federal Government than a review for an export license.
I look forward, as we reauthorize, that we design it in
such a way and obtain whatever appropriations are necessary so
that we make the right decisions and we make them quickly.
Thank you.
Mrs. Ros-Lehtinen. Thank you so much, Mr. Sherman. I'd like
to take this opportunity to introduce our panelist, Mr. Roger
Majak, who will share his insight and expertise on the Export
Administration Act.
Mr. Majak serves as assistant secretary of Commerce for
Export Administration. A political economist who has
specialized in international trade and national security
policy, Mr. Majak has served in a variety of capacities
throughout his career, including having served as the staff
director this Subcommittee from 1975 to 1985.
We thank you for joining us today, Roger, and we look
forward to your informative and engaging hearing over the issue
of the EAA. Due to a previously scheduled appointment that
could not be moved, I will leave sometime during this hearing
and a very able vice chair of this Subcommittee, Mr. Manzullo,
will chair.
Thank you so much, Mr. Majak, and you may proceed. Your
full statement will be entered into the record, without
objection.
STATEMENT OF ROGER MAJAK, ASSISTANT SECRETARY OF COMMERCE FOR
EXPORT ADMINISTRATION, DEPARTMENT OF COMMERCE
Mr. Majak. Thank you, Madam Chairwoman. It's a great
pleasure to be back before this Subcommittee where I spent so
much time from 1975 to 1985. Of course, the Administration
appreciates the interest and concern of this Subcommittee and,
indeed, the full House International Relations Committee in the
subject of export controls.
Since August 1994, when the Export Administration Act
expired, as you noted, Madam Chairwoman, we have maintained
export controls on dual-use goods and technologies through a
combination of emergency statutory authority, executive orders,
and our regulations. The Cold War has ended and export control
legislation reflecting that reality is long overdue.
A new Export Administration Act should recognize the
current realities of today's intricate, fast-paced markets.
Such a new law is needed in order to help ensure our national
security, to enhance U.S. leadership and credibility throughout
the world, and to avoid legal challenges that we are now facing
under the International Economic Emergency Powers Act statute.
The Administration's export control vision is to continue
to maintain military superiority in the face of more diffuse
adversaries and less multilateral agreement on precise security
threats. We seek to maintain the gap between our capabilities
and those of our adversaries by both retarding their progress
and accelerating our own.
National security has become a direct function of our
economic strength in this global economy. Our military alone no
longer purchases enough to maintain healthy suppliers. Failure
to export means fewer profits for today's high-tech companies
to pour into new technologies which are needed for, among other
things, our defense.
At the same time, the ubiquity of many technologies and
their ease of transfer makes controlling exports all the more
difficult. Semiconductors and computers are just two examples
among many. Large capital items like machine tools,
semiconductor manufacturing equipment, satellites, and
aerospace items are more susceptible to controls, but there
again, controls that are too broad can cripple companies that
are critical for our own military development and security.
Our lead in these crucial product sectors is based on the
quality and efficiency of our production, not on any monopoly.
Close any part of the world market for any of these products
and competitors will move in, using China or India, whatever
markets we restrict or abandon, to gain market share to
eventually challenge our global leadership.
This Administration believes that our continuing ability to
stay at the cutting edge of technology is the key to our
security. This is very different from the Cold War approach of
simply denying products to a clearly identified adversary. In
short, the Administration's equation has become exports equals
healthy high-tech companies equals strong defense.
Operating under these emergency authorities, Madam
Chairwoman, leaves important aspects of our export control
system and thus our national security at risk. Penalties for
violations, both civil and criminal, are too low, eroding the
deterrent effect of controls by tempting some companies to view
penalties as just another cost of doing business.
Even the penalties in the EAA of 1979, as it was amended
over the years, are now outdated. The Administration proposed
significant increases, which were reflected in H.R. 361, which
was passed by the House in 1996, but not enacted into law. Our
enforcement agents are without adequate police powers: Powers
to make arrests, powers to execute search warrants, and to
carry firearms. They must obtain special deputy U.S. marshal
status in order to do their job, consuming limited resources
that could be better used on enforcement activities.
The Emergency Powers statute under which we're operating
has no explicit confidentiality provisions, which jeopardizes
both national security and business competitiveness. As Under
Secretary Reinsch predicted before this same Subcommittee in
1997, lawsuits have now been brought under the Freedom of
Information Act seeking public release of detailed export
licensing information. Similarly, respondents in anti-boycott
cases argue, so far unsuccessfully, that the Administration has
no authority to implement and enforce the anti-boycott
provisions of the Export Administration Act and our
regulations.
These challenges are directly related to the absence of
specific authorities in the International Economic Emergency
Powers Act.
The Administration's proposed EAA, as well as H.R. 361 and
now S. 1712, currently under consideration in the Senate, would
restore these various crucial powers. In so doing, such
legislation would also restore a level of certainty about
export controls that our companies need and deserve. We have
made considerable progress in eliminating unnecessary controls
while enhancing our ability to control truly sensitive items.
Industry has the right to expect these reforms to be certain
and permanent in order to plan legitimate export transactions
and to comply with the restrictions.
Continued failure to enact a new EAA sends the wrong signal
to them, as well as to our former Soviet and Warsaw Pact
adversaries and our allies, all of whom we strongly urge to
strengthen their export control laws and procedures. So the
credibility of our export control policy is diminished both
domestically and internationally by our lack of a specific,
permanent statute.
In February 1994, the Administration proposed to renew and
revise the EAA to refocus on the proliferation of weapons of
mass destruction without sacrificing our interest in increasing
exports, reducing the trade deficit, and maintaining global
competitiveness in critical technologies.
The Administration bill emphasized five principles. First,
export controls exercised in conjunction with the multilateral
nonproliferation regimes. Second, increased discipline on
unilateral controls. Third, a simplified and streamlined export
control system. Fourth, strengthened enforcement. Fifth,
expanded rights for exporters to petition for relief from
ineffective controls.
H.R. 361, which was passed by the House in 1996, made
several improvements to the EAA similar to those contained in
the Administration proposal. Control authority was updated to
address current threats, to increase discipline on unilateral
controls, and to enhance enforcement.
H.R. 361 also contained reforms of the licensing and
commodity jurisdiction procedures which were largely embodied
in Executive Order 12981, which was issued by the President in
December 1995. Under that order, the Commerce Department
manages the export control system for dual-use goods and
technology, as it always has, but State, Defense, and Energy
review any and all licenses they wish and can easily escalate
their concerns all the way to the President.
It's a tribute, Mr. Chairman, to the effective management
of this system and the good faith of all the agencies involved
that consensus is reached under these procedures in more than
90 percent of all cases and agency reviews have been conducted
in less than half the allotted time, on the average. So far,
all differences have been resolved at my level, the assistant
secretary level, or below and no case has gone to the Cabinet
or the President, except in situations where there is a
statutory requirement to do so.
The Administration, however, has had and continues to have
some concerns about H.R. 361 regarding its terrorism provision,
its provision regarding unfair impact, the provision for anti-
boycott private right-of-action, its judicial review
provisions, and some constitutional issues which the
Administration feels are raised by the bill.
Finally, S. 1712. Last September, the Senate Banking
Committee unanimously reported that bill. While structurally
different from H.R. 361, it nevertheless updates controls to
address current security threats and contains other useful
provisions, including enhanced enforcement authorities and
significant higher penalties for violations. It is largely
consistent with the Administration's own procedural reforms. S.
1712 continues to be the subject of discussions between the
Banking Committee and interested members of other Senate
committees. Pending the outcome of those discussions, the
Administration has not yet taken a formal position on that
bill.
In conclusion, Mr. Chairman, we need an EAA that allows us
to address our current security concerns effectively while
maintaining a transparent and efficient system for U.S.
exporters. The Administration and the House, particularly in
H.R. 361, and the Senate Banking Committee, in S. 1712, have
agreed on many of the salient issues. Together, we should build
on the consensus that has already been achieved to reauthorize
an EAA that enhances our security in the ways that I have
outlined in this statement.
Thank you for the opportunity to address the Subcommittee
and I would be glad to take any questions you might have.
Mr. Manzullo [presiding]. Thank you, Mr. Secretary. Mr.
Menendez.
Mr. Menendez. Thank you, Mr. Chairman. Mr. Secretary, thank
you for your statement. There's a lot that I find that I am in
concurrence with you on and I appreciate the
straightforwardness of it. Let me ask you a couple of
questions, though.
One, we, as the Chairlady said earlier, are having a markup
of Congressman Dreier's legislation. I support that bill,
however I'm concerned that it only touches the surface or
partially addresses the industry's concerns. Do you believe
that the legislation is sufficient to address the industry's
concerns?
Mr. Majak. As I have reviewed in this statement, I think
there are a broad range of situations that need to be
addressed. Certainly the subject of the Dreier bill is one of
them, but only one of quite a number. Those matters that need
to be addressed are of concern to both the business community
and to the Administration. So we would certainly prefer a more
comprehensive piece of legislation to deal with the full range
of both industry and administration concerns.
Having said that, the reduction of the time for review of
changes in our computer policies is needed and the
Administration will try to work with all approaches to this
legislation. But I think we would strongly prefer a more
comprehensive approach and one which would contain a permanent
authority.
Mr. Menendez. We support Mr. Dreier's effort to reduce the
time. The problem is that that is only part of a series of
issues that confront the industry. I would hope that my
colleagues, when we have the markup, understand that the
resolution of that one issue in no way puts us in the position
to be totally as competitive as we need to be and address both
our security concerns.
Now you said we have agreed, and I believe you're right, on
the wide range of the salient issues in both the Senate and the
House legislation. So what's stopping us? What's stopping us?
Why can't we move forward from here? What is it that is--I have
a sense of what's stopping us, but I want to hear the
Administration's perspective of what is stopping us from moving
forward with the reauthorization?
Mr. Majak.I think what's stopping us at this point is the
remaining diversity of views, especially by key committees in
the Senate, since that's where the most recent activity has
been.
Mr. Menendez. Particularly Defense-related views?
Mr. Majak. Particularly Defense and, to some extent,
Intelligence-related views. But also Foreign Relations-related
views. There are at least three committees, in addition to the
Banking Committee, who have remaining concerns about S. 1712. I
know that Senator Gramm, Senator Enzi, and others in the Senate
have worked diligently to try to resolve those differences of
view, but they are substantial differences which, so far, have
not been resolved.
We in the Administration have taken the posture of
encouraging this process to move forward because we believe the
underlying bill, S. 1712, as passed by the Banking Committee,
is a promising vehicle. We have tried to facilitate some
possible compromises and to comment on all of the proposals
that have been put forward. But, so far, I think those
differences have not been resolved.
Mr. Menendez. Could you outline for the Committee what some
of those differences, without mentioning who the differences
emanates from, but what some of those differences are?
Mr. Majak. Yes. For example, the Senate bill contains
provisions for removing items from control on the basis of
foreign availability, as well as on the basis of mass market
production which, makes these items difficult or impossible to
control.
Under the Senate bill, the Commerce Department would make
those determinations. But before those items were removed from
control, there would have to be some degree of interagency
consensus. Members of other Senate committees feel that there
should be some category or list of items that would be
ineligible for that kind of review or that should require
Presidential level decision to implement the removal of items
from control. So there is disagreement over that issue, for
example.
There are a number of others. I think----
Mr. Menendez. Is the Administration actively engaged in
trying to reconcile some of these other issues so that we can
have a reauthorization? Or is the Administration's position to
sit back and wait to see if the parties themselves?
Mr. Majak. No, we've been quite actively involved,
including a number of late-night meetings at which I
personally, and others, have participated and which the
representatives of the various committees have sat around the
table and tried to resolve these issues. So we have been quite
available and proactive.
Mr. Menendez. Are you're brethren in the Department of
Defense actively engaged in trying to seek also a
reauthorization? Because sometimes I get the sense that there
are those in this process who believe that, by raising every
possible obstacle, we'll not see a reauthorization. Their
ultimate goal is to virtually, in their views, which I believe
are wrongly held although I believe they hold them for the
right--for their own--I think they're committed to their views.
I think their views are wrong. But I think they're committed to
their views for what they believe are the right interests.
But I think, ultimately, what happens here is that there is
an effort here that does not move this process forward. Because
those who don't want to see the process moved forward because
they believe they want to give access to nothing, which I think
is a very myopic view of the world today, don't want to see
something happen or are they actively engaged in a good faith
effort here to make this happen?
Mr. Majak. No, I would have to say, although there are a
variety of opinions in these departments, I would have to say
that the Defense Department and the State Department in
particular have taken an active part in these discussions. Each
of the agencies has, from time to time, offered compromise
language in response to the concerns of one committee or
another. But, ultimately, at the end of the day, we can't
resolve the disputes. That must be done by the members of the
respective committees themselves.
But I can say from personal experience, that all of the
agencies have been at the table willing to respond to the
various positions, to offer compromises, and suggest different
approaches. But so far, that has not succeeded in bridging the
differences.
Mr. Menendez. Yes, I hope they recognize that, ultimately,
in those products that are available in the marketplace and
that others are providing, that I would rather see, for the
security interests of the United States, products that are
produced in the United States which we will have the total
wherewithal and knowledge of and we can deal with versus those
products that are produced elsewhere that we do not know.
Mr. Chairman, one last question, since there's only the two
of us, it appears, if I may. If current controls are continued
and a new Export Administration Act is not enacted, from the
view of the Department of Commerce and understanding your
charge in that regard, what's the impact on the ability of U.S.
industries to export?
Mr. Majak. Mr. Chairman, I think it would be our plan and
expectation to continue the process and the policy as we have
since 1994 under our emergency authorities. In that regard, I
would expect us to continue to approve a large proportion of
the license applications that we receive, to review all of
those license applications on an interagency basis, and to
proceed largely as we have.
So I don't think that there would be any disruption of our
ability to exercise these controls, except to the extent that
we might face legal challenges.
Mr. Menendez. I will tell you, Mr. Secretary, that those
who have come forth from these hearings from the private sector
will say that, in fact, that it is more than just that reality.
It is beyond the legal challenges you are facing, that they
face the loss of exports which are growing, if not the
substantial part, of their business. I just really do not
believe that just the continuation of the existing process, as
well-intentioned as it is under the best of the circumstances
that exist, inures to our interests either commercially or, for
that fact, in terms of national security.
Thank you, Mr. Chairman.
Mr. Manzullo. Thank you, Mr. Menendez. Mr. Secretary, first
of all, I want to thank you for the efficiency with which your
agency handles all types of requests, the fairness with which
you interpret the law, and the nonpartisanship involved in the
agency. It's really a credit to you and the people that work
with you. You are trying to do what's best for the United
States, taking into mind the overriding concern for national
security and I commend you, publicly, for that.
Mr. Majak. Thank you, Mr. Chairman. That's a great
compliment.
Mr. Manzullo. I only wish that other Members of Congress,
in addition to Mr. Menendez and I, had as much understanding of
what's going on or had a fraction of your understanding of this
issue, because it's extremely difficult to understand. So often
the first thing that Members of Congress want to do is, in
reaction to a bad foreign country is to punish American
manufacturers for something over which they have no control.
But I have a question about Wassenaar that's come up
several times. As you know, COCOM worked on a consensus basis.
How do we strengthen Wassenaar so that, if the United States
decides against issuance of a license, that one of our allies
doesn't undercut us and go ahead and simply sell the same
thing? What are your thoughts on that?
Mr. Majak. This is a very difficult and knotty problem.
Certainly what we need to do first is continue to press our
partners at Wassenaar and the other multilateral agencies to
adopt what we call ``no undercut'' provisions, which we have
done in Wassenaar. We have repeatedly proposed to strengthen
the no undercut provisions that are under the agreement.
At present, those provisions largely require member
countries simply to consult before they make a sale that
another member turned down. That process is working moderately
well, but we would like to expand it to include more items and
to include more than just notification, but some greater
obligation to, in fact, to respect the denials of other
countries.
We have not been able to achieve much progress in that
area. This, I think, is in part a spill-over from COCOM and the
Cold War days when our allies and partners at times resented
and resisted the pressures of what was then actually prior
approval of their licenses, as you mentioned. The presence of
some additional countries in the Wassenaar group, like Russia
and the Ukraine, for example, make selling the idea of a no
undercut arrangement even more difficult.
At the end of the day, it seems to me, having observed this
now for a couple of years, it really is a question of how much
priority we're prepared to put on achieving stronger no
undercut provisions. Frankly, we have had on the table other
things that we have wanted from Wassenaar, like greater
controls on small arms and other items that are not subject to
controls. So there are tradeoffs.
We've also wanted to remove some items from Wassenaar
control which we felt no longer require controls. That requires
us to use some political capital with our partners.
So we have obtained some other concessions from them. It's
just a matter of how much we want to extract in order to get
that kind of cooperation. I'm not sure, under the present
circumstances, even very heavy pressure from us will get us a
broader no undercut provision.
Mr. Manzullo. They have no incentive. They realize, unlike
this country, that if something is readily available on the
open market and the United States is trying to be righteous and
say we don't want to sell it, then why close that market to
another country? Good luck on negotiations, but if you don't
succeed and strengthen it, I'm not going to hold that against
you or anybody else who is working on our behalf.
Mr. Majak. I appreciate that. I should note, Mr. Chairman,
that we have had some reasonable cooperation from them in the
no undercut area with respect to the terrorist states, which is
the central and the main focus of Wassenaar. Where you begin to
lose discipline is when you talk about destinations outside of
the key terrorist countries. There is much less willingness to
recognize a no undercut concept.
Mr. Manzullo. That answers my question.
Congressman Cooksey, would you like to chair this hearing
to its conclusion, because I have to go on to another meeting?
Thank you. I appreciate it very much, Mr. Secretary.
Mr. Majak. Thank you, Mr. Manzullo.
Mr. Cooksey [presiding]. I'm asking the staff a question
that I don't know the answer to myself. Does Israel belong to
the CAA?
Mr. Majak. Israel----
Mr. Cooksey. Have they participated in the past?
Mr. Majak. Israel is not a member of any of the
multilateral export control cooperation arrangements at
present.
Mr. Cooksey. Why not?
Mr. Majak. Because they prefer and feel they need to pursue
an individual and independent course. I should note, however,
that they recognize and cooperate with U.S. controls and the
Wassenaar and other multilateral controls, in fact, in some
cases. But they feel that they must preserve their national
discretion so they have not joined these multilateral
organizations.
Mr. Cooksey. Wassenaar does not really have any teeth in
it, though, does it, as it currently exists? Or does it?
Mr. Majak. The teeth are, essentially, powers of persuasion
and pressure from other members to conform. It has teeth in the
sense that it has a common list of items that are controlled
and that is a very important area of consensus in itself. If
you don't at least have a common list of items that are of
concern and should be controlled, to one degree or another,
then you have, really, no coordination at all.
Wassenaar does have such a list and much of our time is
spent at Wassenaar refining and improving that list. That
includes both extensions of the list as well as deletions from
the list. So that is a very important core of cooperation.
However, the type of control that countries apply to those
items is subject to national discretion and, therefore, some
significant variation. We control those items in one way. Other
countries, using other kinds of mechanisms and other legal
authorities, may control them differently. We try to harmonize
the impact as much as possible, but there is the ability to
have variation based on national discretion.
Mr. Cooksey. Let me ask you a followup question on that.
Recently Israel has exported some missile technology to China.
Am I not correct? It is missile technology?
Mr. Majak. I have seen reports to that effect. I can't--or
at least, in public session, wouldn't want to confirm or
disconfirm it. But, certainly, I've seen those reports.
Mr. Cooksey. I got it from reading the newspaper. I find
when I go to the CIA briefings or I just left another members
only meeting, I can read the same thing in the newspaper, the
New York Times, the next day. What did the Administration do to
prevent this? I understand they expressed some opposition to it
and Israel said they would go ahead with this.
Mr. Majak. Here the absence of my State Department
colleagues at the table handicap me because they would have
undertaken those representations. I'm sure there were
representations made, but I'm, frankly, not familiar with them
in detail. I'd have to defer to the State Department to answer
that question.
Mr. Cooksey. I consider Israel a very important ally and,
as a result, we give them a lot of technology and a lot of
important military technology. It is a little bit disconcerting
when you see that they are, in turn--I'll tell you what it was.
It was really the AWACS technology. They are transferring that
technology to them.
Mr. Majak. Yes.
Mr. Cooksey. And, of course, the missile technology goes
back to 1996 and I understand the two principals--now this was
the front page of the Washington Post--the two principals in
those companies, Loral and Hughes, are in China today, as we
speak.
But my good friend from California, Mr. Rohrabacher is
here. Mr. Rohrabacher.
Mr. Rohrabacher. Thank you very much. There was a news
report about the U.S. Ambassador to China hosting a meeting
between the China space agency and Hughes and Loral. Was this
approved by the White House?
Mr. Majak. I saw that report, Mr. Rohrabacher. I have not
been able either to confirm, in the short time since I did see
it, whether the meeting took place or whether it was cleared by
anybody in the Administration. I can say with certainty it
wasn't cleared by me, but whether it was cleared elsewhere in
the Administration, we'd have to determine and get back to you.
Mr. Rohrabacher. Is it the Administration's policy that
Hughes and Loral should be meeting with the China space agency?
Mr. Majak. I could only speak for the area of authority
that I have, which is how we treat those companies with respect
to future exports. Under the Export Administration Act, as
extended by the President, unlike the munitions control
statute, which authorizes the U.S. Government to withhold
business from companies when they've been accused of these
possible violations, there is not a similar provision in the
area of dual-use technology. So I could say that, under our
legislation, discussions of exports of dual-use equipment by
those companies would not be prohibited.
Mr. Rohrabacher. All right. Is it still the
Administration's policy that China is treated as a strategic
partner?
Mr. Majak. I think, again, I would have to defer, with your
forgiveness, Mr. Rohrabacher, to the State Department for a
proper answer to that question.
Mr. Rohrabacher. All right. It just seems to me that you
guys all have the same boss and I give he would give the same
guidelines.
Just for the record, Mr. Chairman, just let me say this
whole situation when you read in the newspaper, after going
through years of seeing that there is a technological transfer
to China through Hughes and Loral corporations that has been
deemed something that damaged our national security, put
millions of lives at risk that wouldn't otherwise be at risk,
the fact that there is a meeting arranged by the U.S.
Ambassador for these same two companies on the very same
subject area with the very same culprits that were the
recipients of this technology before, is breathtaking. It's
just beyond belief.
I mean, this proves that Mark Twain was wrong. A cat will
sleep on a hot stove twice. You're not at fault. You're not
here to be raked over the coals. You're here to just try to do
your best, I know. But this Administration, through what we're
talking about today and through just in this one incident, has
demonstrated again its either incompetence or its sheer
disregard for the national security interests of the United
States of America.
I don't know why, but that's what's happening and this
Congress eventually is going to get down to the reason why
these decisions continue to be made over and over again with
America's worst potential enemy.
Than you very much, Mr. Chairman.
Mr. Cooksey. Thank you, Mr. Rohrabacher.
Mr. Menendez, would you like to have a closing comment?
Mr. Menendez. Right. Just very briefly. Just a quick
question to the Secretary. I appreciate all of your answers and
your testimony. How long have we been authorizing satellites as
a government?
Mr. Majak. As commercial items, since, I'd say, the late
1960's, when what was previously largely a military activity
became commercialized and we began using commercial satellites.
Certainly, Intelsat, for example, has been around even longer
than that. But in those days, the State Department still
licensed many of those satellites as munitions. Of course, the
jurisdiction was transferred from the Commerce Department for
commercial satellites in 1996.
Mr. Menendez. So we have been authorizing and licensing
satellites since before this Administration, I take it.
Mr. Majak. Much before this Administration.
Mr. Menendez. Thank you very much, Mr. Secretary.
Mr. Majak. Thank you.
Mr. Cooksey. Mr. Majak, Mr. Secretary, we appreciate your
coming today. I appreciate your testimony. It's an important
issue. Needless to say, there's controversy that surrounds
this. I feel that you've given a good presentation and I
personally thank you. We've got to go vote.
Mr. Majak. Thank you.
Mr. Cooksey. The meeting will be adjourned.
[Whereupon, at 3:56 p.m., the Subcommittee was adjourned.]
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A P P E N D I X
March 22 and April 4, 2000
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